Christmas, a time to celebrate and a time to consider FBT
As small businesses around Australia celebrate Christmas, it is useful to remember the FBT implications when providing staff gifts and hosting parties in the lead up to Christmas.
The possible FBT implications will depend on:
- The amount spent on each employee
- Who attends the event – is it just employees or are partners, clients or suppliers & associates also invited?
- When and where the event is held
- The value and type of gifts provided
Read on for more details on these implications for staff gifts and Christmas parties.
If your workplace is planning something formal or extravagant, the following may apply:
For functions held on business premises – these may be exempt if all attendees are employees. If you are inviting any of the employee’s associates (e.g. spouse or children), their portion of the cost would be subject to FBT.
For functions held outside of the business premises – the benefit may be exempt if the per head cost is less than $300 (including GST) under the minor benefits exemption. The minor benefits exemption also applies to associates of the employees. It is however important to note that the minor benefits exemption can only be used by businesses who use the actual method of valuing their entertainment benefits for FBT purpose.
If the business uses the 50:50 method to value its entertainment fringe benefits, the cost of the Christmas function will not be exempt under the minor benefits exemption.
For smaller, and simpler functions such as morning or afternoon teas and light lunches provided in the office, these are generally not subject to FBT if the attendees only include employees. These are also generally not considered entertainment benefits and the employer can claim a deduction for the costs incurred in relation to this.
Staff gifts (e.g. hampers, gifts cards, movie tickets etc.) are generally subject to FBT unless the minor benefits exemption applies. Under the minor benefits exemption, you can provide gifts to staff and not be liable for FBT if the value of the gift is less than $300 (incl. GST). If the gift is equal to or more than $300, you will be subject to FBT.
To highlight the difference a dollar can make in this example, if you provide your staff with a gift for $300 instead of $299, the FBT payable on a $300 gift = $293, compared to $0 FBT payable on a $299 gift.
Income Tax And GST Implications
Costs incurred in relation to a Christmas function are only tax deductible where FBT has been paid. Similarly, GST credits are only claimable if FBT has been paid on the benefit. Therefore, if the business has claimed one of the exemptions above, the costs would not be deductible to the business for income tax or GST purposes.
Generally speaking, if you provide a fringe benefit to an employee which is not exempt (i.e minor benefits exemption) or concessionally taxed, you will be subject to FBT. The amount of FBT you pay will be similar to the amount of the actual benefit provided. Given this potential tax liability, it is important that businesses understand their FBT implications this Christmas season.
If you require any assistance in understanding the taxation implications above, please contact your Hall Chadwick QLD advisor.
Hall Chadwick QLD is not a financial advisor. This article should not be taken as financial or investment advice and is general in nature. You should consider seeking independent financial and legal advice to see how the information provided relates to your unique circumstances.